Property has two types of potential returns. One is from rent paid by tenants and the other is from the property increasing in value - called capital gain.
Property investments are not considered to be 'liquid' because we can't withdraw our investment quickly. To get money out we need to sell the property or increase the mortgage. This may not be easy - and there can be extra costs such as valuation and real-estate agent fees.
People buy investment properties to make a long-term profit as prices rise. In the short term there may be little or no profit from rent after expenses like mortgage, insurance, rates and maintenance are taken into account. If we sell within two years of buying, we will also have to pay income tax on the sale.
The benefits of property investment
Buying an investment property is a very popular investment option in New Zealand. One of the main advantages is that you have control over most parts of your investment. You have the power to decide:
- If the purchase price, rental and potential for capital growth are acceptable.
- How much cash you're going to put into your property investment, if any.
- How you'll structure your mortgage(s).
- How you're going to improve the value of your investment property to achieve the rental return you want.
- If you'll manage your investment property or properties yourself, or pay a property manager to do it for you.
- How you're going to maintain the property and whether you'll repair it yourself (if you can) or get someone else to do it.